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Coinbase CEO: SEC's crypto warning 'not good for America'

The chief executive of Coinbase Global (COIN) said Thursday that a warning his company received from the Securities and Exchange Commission "is not constructive" and "not good for America," an escalation in the sparring between the largest US crypto exchange and a powerful Washington regulator.

The video message from Brian Armstrong released Thursday was part of a larger public response by Coinbase to receiving a Wells Notice last month. That notice stated that SEC staff had made a "preliminary determination" to recommend an enforcement action for violations of federal securities laws.

On Thursday Coinbase also released a letter it sent to the SEC responding to the Wells notice. SEC staff, Coinbase said in the letter, "contends that Coinbase has operated illegally since at least 2018" but the staff's legal theories are "flawed and untested."

It also states that a SEC enforcement action "would present major programmatic risks to the commission" and "would fail on the merits because Coinbase does not list, clear or effect trading in securities."

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Coinbase shares were flat Thursday. They have risen more than 53% since the beginning of January but remain down 82% since its initial IPO in April 2021.

The sparring between Coinbase and the SEC is part of a larger effort in Washington to rein in the cryptocurrency market.

Chair Gary Gensler has called for crypto exchanges to register with the agency. Since the beginning of January, the SEC has also issued 14 enforcement actions against crypto firms and individuals.

Other exchanges have also butted heads with the SEC. They include Kraken, the country’s second largest crypto exchange, which reached a $30 million settlement with the SEC after being accused of offering the sale of unregistered securities through its crypto staking program.

Coinbase also has a staking program with terms that differ from the Kraken program, and it has told Yahoo Finance it would fight any action against this service. SEC staff, it said in its letter to the agency, "contends that Coinbase’s staking services are investment contracts."

Another exchange, Bittrex, said it would wind down its U.S. operations in late March two weeks before the SEC published an enforcement action against the business for failing to register as a national securities exchange.

Armstrong, in his video Thursday, said he was prepared to fight the SEC in court. His chief legal officer, who also appeared in the video, said the company was also willing to show up at the office of the SEC any day and time to find a workable future for the crypto industry in the US.

In the company's written response to the agency, Coinbase said that the threat of litigation by the SEC "appears intended to pressure" the company to accept the agency's view that all digital assets on the Coinbase platform are securities. That, it said, would mean overhauling its business model.

"Neither of those objectives is supported by law or within the bounds of the commission’s authority," Coinbase said.

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